Source · Select Committees · Public Accounts Committee
Recommendation 17
17
Deferred
Ofgem told us that, in its view, the price cap had been a huge benefit...
Recommendation
Ofgem told us that, in its view, the price cap had been a huge benefit for customers and had done a lot of good for them over the last six months, and that while the price cap could not stop rising energy prices, it had “mitigated them somewhat”. It explained that the price cap had prevented suppliers from immediately being able to put up their prices in response to the increases in wholesale prices, which meant price rises were staggered, helping customers to manage them.38 It also explained that, more broadly, the price cap limited suppliers’ profit margin to 2%, whereas in 2015–16 some suppliers were charging margins of up to 8%.39 However, between the price cap’s introduction in 2019 and April 2022, a typical customer’s bill nonetheless increased by 78%, from £1,105 per year to £1,971. The subsequent 80% increase in the price cap to £3,549 in October will mean it 33 Q 59; C&AG’s Report, para 1.6 and 2.6, Figure 3 34 C&AG’s Report, para 1.7 35 Qq 21, 88 36 Q 56; C&AG’s Report, para 2.14 37 Ofgem, Ofgem updates price cap level and tightens up rules on suppliers, Press release, 26 August 2022 38 Qq 21, 55 39 Q 59 14 Regulation of energy suppliers will have increased 221% between 2019 and October 2022.40 We asked the Department whether it had considered introducing a cap on the amount that customers pay on their overall bills rather than the profits that suppliers could make. The Department told us that this would create a crisis elsewhere in the energy system, and that it would require an “almost complete reinvention of the way our energy market works”.41 Ofgem told us that it had to reflect costs in the setting of the price cap, but that the Government had put in place a series of measures, such as the Energy Bill Support Scheme, as a way of mitigating those rises as best it could. We also asked the Department if anything more could be done to support businesses that are not protected by the price cap and find they cannot afford their energy bills. The Department
Government Response Summary
The government will develop a new approach to consumer protection in energy markets, which will apply from April 2024 onwards, including options such as social tariffs, as part of wider retail market reforms.
Government Response
Deferred
HM Government
Deferred
4.1 The government agrees with the Committee’s recommendation. Target implementation date: April 2024 4.2 The price cap has protected consumers from being overcharged for their energy for many years. The cap reflects the real cost of supplying energy to households, including the costs of purchasing wholesale gas and electricity, and the legislation requires Ofgem to set the cap at a fair level. 4.3 However, the price cap was introduced when the energy market was much less volatile and was not designed to deal with the extreme wholesale prices seen in recent months. So, to protect households from high wholesale prices the government has introduced the Energy Price Guarantee (EPG), which supersedes the cap as the main consumer price protection until 31 March 2024. The price cap remains in place and now operates as the reference price for delivering the EPG. Ofgem continues to monitor the cap level and make necessary changes to ensure the cap continues to protect existing and future default tariff customers. 4.4 As set out in the Autumn Statement 2022, the government will develop a new approach to consumer protection in energy markets, which will apply from April 2024 onwards. The government is committed to work with consumer groups and industry to consider the best approach, including options such as social tariffs, as part of wider retail market reforms. The objectives of this new approach will be to deliver a fair deal for consumers, ensure the energy market is resilient and investable over the long-term, and support an efficient and flexible energy system. Ofgem supports this approach and will work closely with the government on future measures.